Earlier this year, we sent out the first installment of what we hope will become a regular (and brief) survey to capture the pulse of the most important members of the entrepreneurial ecosystem, the entrepreneurs.

In each survey we will ask questions on the topics that are top of mind for CEOs running a startup, focused on a particular theme each time. The first survey focuses on hiring and recruiting. We would like to share those responses with the community so that you can compare your feelings and experiences with those of your peers. Thank you all for participating in this survey, and we hope the insights are helpful.

Executive Summary

Survey respondents are mostly early stage, B2B software companies on the East Coast, which is very reflective of the Osage Venture Partners (OVP) strategy. Highlights from the analysis include:

None of the respondents have current plans to reduce headcount, and they are planning on hiring more aggressively than they did in the past 12 months

Technical skills, raw talent, and cultural fit are considered to be the top 3 most important recruiting criteria; consequently, development / engineering leadership proves the most challenging position to recruit for

Respondents are more confident about their own ability to hire versus that of their direct reports

Finding qualified candidates is rated the biggest challenge in recruiting

The top 3 recruiting channels are personal networks, external recruiters, and job boards; despite the hype about LinkedIn, less than 25% of respondents rated LinkedIn among their top three recruiting channels

When analyzed by demographic groups, very few differences emerged across the various cohorts, and thus that analysis is withheld below.

Demographics

Overall, the survey respondents are very reflective of the OVP strategy, and thus offer a highly relevant cohort for early stage, B2B software companies on the East Coast. Among all the companies surveyed, 83% are located in the Mid-Atlantic region, 81% have fewer than 50 employees, and 84% have less than $10M of revenue, and 81% have raised less than $10M of total capital. The two largest industries represented are B2B software and Healthcare IT.

Survey Results

Respondents indicated an increased optimism about current hiring plans relative to past headcount growth[2], as 74% of companies surveyed are currently hiring, compared to just 61% that increased headcount in the past 12 months. Encouragingly, none of the respondents have current plans to reduce headcount – a surprising finding even despite the typical optimism of early stage technology CEOs and the fact that 10% of respondents reduced headcount over the past twelve months.

Investigating current hiring plans by demographic groups reveals takeaways that are in line with intuition. For example, the larger a company’s size, the more aggressively its current hiring plans. Further analysis across various cohorts indicates that these trends remained consistent over the past 12 months.

When making hiring decisions, companies consider a wide range of characteristics, with technical skills leading the way as the most important, followed closely by raw talent and cultural fit, suggested by the score below[3]. Interestingly, past experience is much less important, while details around compensation and location were deemed less crucial[4].

Corresponding with the results above, respondents find development / engineering leadership to be the hardest to recruit for (with one equating to a role that is more difficult to hire), followed by developers / engineers.

Overall, respondents are more satisfied with their own ability to hire versus that of their direct reports. 64% of the respondents rate themselves above average, whereas only 39% thinks their direct reports’ ability to hire is above average.

When asked to identify the three most important recruiting channels, respondents far and away highlighted the importance of personal networks in recruiting, which scored nearly two times higher than any other category. Interestingly given the size of respondents (and the often related reluctance to spend money), external recruiters were identified as the second most important channel, with job boards not far behind[5]. Despite the growing role LinkedIn plays in recruiting, both LinkedIn Ads and LinkedIn Proactive Outreach are ranked in the bottom half among all recruiting channels.

76% of the respondents do not have a dedicated head of HR, and 57% use outside recruiters. Interestly, only 47% of the respondents with no head of HR use outside recruiters, whereas 90% of the respondents with a head of HR also use outside recruiters. This may be because respondents with dedicated Heads of HR are more likely to allocate resources to outside recruiters and to other recruiting methods given the maturity of the HR function.

As indicated by earlier respones, engineering leadership, developers / engineers, and sales leadership are the top 3 hardest roles to recruit for. The data below show that these three are also the top 3 roles for which the respondents engage outside recruiters.

Just 55% of the respondents utilize methods other than a traditional interview as part of their hiring process. The most frequently used method is testing. The test can be in different forms including case studies, coding, writing, and presentations. One respondent also mentioned using the Harrison Test, a personality assessment. Other qualitative methods include having the candidate meet the team and perform reference checks and social media checks on the candidate.

Overall Challenges

Somewhat surprisingly given the importance of team and culture to success of an early stage software company, finding talent rates as only the fourth most important challenge to the overall business faced by respondents. The top rated challenge was finding new customers.

When analyzed by industry, finding new customers was the largest challenge identified by both Healthcare IT companies and B2B Software companies. However, Healthcare IT companies cited securing capital as a close second, while finding capital was not one of the top 3 biggest challenges for B2B Software companies.

Conclusion

We thank all participants for the time to fill out the survey, and hope that the results provide some interesting data related to hiring and recruiting trends for early stage, B2B software companies on the East Coast. Given we intend this series to reflect the top issues on the minds of CEOs, we will let the data speak and explore the challenges associated with finding new customers in the next survey.

Question 2: Compared with 12 months ago, has the number of employees (measured as full time equivalents) at your company? 5. Increased Significantly 4. Modestly Increased 3. Remained About The Same Size 2. Modestly Decreased, 1. Decreased Significantly

[3]To analyze the data from questions in which the respondents are asked to rank their top 3 choices, a score is calculated for each choice by assigning 3 points to a top 1 vote, 2 points to a top 2 vote, and 1 point to a top 3 vote, then normalized by setting the highest score to equal 100

[4]Other includes passion, intelligence, and factors that predict performances

[5]Other includes Angellist, Great hiring executives, and Board of directors / investors

I was saddened to learn last week of the death of David Freschman to pancreatic cancer. David was a friend to many in the venture community and was one of the pioneers of venture capital in Delaware and in the Mid-Atlantic region.

As the founder and continual sponsor of Early Stage East, an important regional venture event, David used his force of personality to push this region and its entrepreneurial and venture ecosystem to where it is today even though at times he must have felt he was pushing a stubborn mule from behind. In recent years, other people and organizations, spurred on by David's efforts to prove the viability of the entrepreneurial community, bypassed the stature of Early Stage East, yet David still ran the conference while reveling in all the other parts of the ecosystem which were finally kicking into gear. We all kept coming to the conference because David innovated and kept it interesting and also because none of us wanted to disappoint David.

David was a kind and good man. We lost him too early. Fifty-two is far too young, but David sure did not waste a moment of it. I never heard him say a bad word about anyone and he always had genuine smile, making anyone he welcomed feel like he or she was the most important person he had seen all day. When I first came into venture eight years ago, others made me feel like an outsider to a tight and closed community. David made me feel like a welcome addition. Thanks David.

I first heard that David was sick a couple weeks ago. We sat on a board together and he dialed into the meeting and we were all told what was happening and why he wasn't there. On the phone he was the same old David. Nothing was dragging him down.

My lasting memory of David is also the last time I saw him. He was moderating a venture panel in an obscure club near Grammercy Park in New York, and somehow the panel of five he had prepared for became a panel of eight without anyone telling him. For some this would have ruined their flow and their prepared conversation. For David it was just more the merrier; if five investors were a good panel then eight made a great one. He smiled broadly, made the extra three feel welcome, let the audience know how lucky they were and then moderated the best panel I have been on in years. That was David as we all knew and valued him.

David we will all miss you. Thanks for all you did for the region and for Philly. Thank you especially from all of us who were warmed and welcomed by your smile.

I recently wrote a recommendation for an entrepreneur who I have known for a number of years. Osage never invested in his business because it was a bit out of our scope, but I used to spend time with him discussing his business, his strategy, and his challenges. His company had a less than successful outcome although it was ultimately sold. Part of the recommendation is below:

In my job I watch people build businesses successfully and too often unsuccessfully and the character of a start-up entrepreneur is constantly tested through financial hardship, business setbacks, and a whole myriad of unpredictable outcomes. I saw “Tom” ride a rollercoaster and do it with his character, his family, and his identity intact – which is very hard to do. I have seen many in less challenging situations alter entrepreneurs’ behavior in unfavorable ways, but in “Tom’s” case, he stuck to his principles and ultimately found an acceptable outcome.

Building a business takes time and can be a slog. We all know that the rewards can be high but the challenges can also seem insurmountable at times. We have many criteria for assessing entrepreneurs and management teams but I have come to realize that in addition to everything else, entrepreneurs need to be considered on their ability and willingness to take a ten year journey. We are not investing in the next WhatsApp or Instagram. We are B2B technology investors, and those businesses take time to build. SevOne and InstaMed, two of our oldest but most successful companies to date, have had their ten year anniversaries since founding – and the founders are still at it.

Ten years is a long time, especially as a founder and CEO of a venture backed business. Some of the things an entrepreneur needs to make this journey include:

A belief you are building something of real durable value. Peter Theil talks about the durability question of “will your business exist ten years from now?” He also suggests that to build a durable business, one needs an appropriate combination of proprietary technology, network effects, economies of scale, and strong branding. If you are building a gap filler that you feel will be acquired quickly by one or two potential acquirers think again and go back to the drawing board.

A real passion for the business vision and the problem being solved or the technology being applied. Too many entrepreneurs just think that they have identified an area where they might get rich versus an area that meets their passion. This works in a very small number of cases where exits happen fast. Where exits take time and rely on the building of a real business, passionless CEOs frequently don’t finish the journey.

A willingness to accept below market compensation for all or much of the time. Most CEOs could be making 2x or 3x what they are making in the start-up if they were working in large established businesses. It is easy to give up this salary for the dream of entrepreneurship in the early days, but harder to sustain below market compensation for the long run as equity can’t be used to cover personal cash burn. Many CEOs may go from single to married to married with children during the lifecycle of their business, and their personal expenses (and the challenge of foregoing cash compensation) rise dramatically when that happens. When entrepreneurship works, the sacrifice is well worth it. Equity doesn’t pay the rent, but over time it can make you the landlord.

Strong relationships and a strong sense of self. As I wrote above, “I saw “Tom” ride a rollercoaster and do it with his character, his family, and his identity intact – which is very hard to do.” I do not know the statistics on failed relationships for entrepreneurs but they must be high. Successful founders are thinking about their business 24 / 7 and are on the road constantly – with customers, investors, and partners. This can create challenges at home and can cause relationships to fail – marriages, friendships, and partnerships. Founders who are not seeing visible success may have even greater stresses without the promise of the brass ring to salve the hardship incurred.

If you are in a meeting with Osage and we ask you if you are ready to run this business for the next ten years – think about whether you really have the right business, the passion, and the willingness to go all in. The risks can be extremely high, but the rewards can also be great. We are hoping you say yes – but with eyes wide open. At Osage, we fundamentally respect entrepreneurs and hold our portfolio CEOs in high regard because they have put all their chips on the table and work tirelessly every day to increase the odds of success.

My son Nicholas is almost twelve and he has been blind for most of his life. For seven years he was mostly blind with a shade contrast, but he lost that five years ago and has been completely blind since then. He goes to a school for the blind, which is working on getting him ready to be mainstreamed for high school.

Nicky is fortunate to live in the decade he is living in because technology is making his life so much easier. He has a braille computer, which allows him to type in braille and upload it to a flash drive (and eventually the internet) in text for non-braille readers. He can also take in content, have it translated to braille, and then read it on this computer through small pins that form a flow of braille delivered at his fingertips. He also has all the Steve Jobs gifts of accessibility, which have been built into his iPhone and his iPad. He manipulates those devises, is self sufficient on the phone, sends and reads texts and emails, and watches movies when he wants (or listens to them). Books on tape through iTunes or Audible allow him to be one of the best-read people in our house. It is amazing what enabling technologies have emerged in Nicky’s short lifetime.

None of these innovations compare to the promise of the Google car. For a blind person, it is a life changer. Nicky and I were driving one day listening to a discussion of the Google car on NPR. We both listened for a while and then during a break, Nicky said to me, “Dad, when will those cars be ready? Do you know how that would change my life?” I looked over at this little kid – ten years old at the time – and I marveled. I asked him, “Nicky, how did you know I was thinking the same thing?” He grabbed my hand, which he rarely does unless he needs to be guided from one place to another, and he smiled at me.

Since he learned about the promise of the Google car, he brings it up regularly. When I imagine Nicky as a grown up, I do not see him with a dog or a cane walking down streets and finding his way or trying to manage public transportation. I see him in a Google car, talking non-stop to the computer robot, and feeling excited about offering others rides in his car. His guide-dog will be sitting next to him, enjoying the ride, and ready for the last segments of the trip that cannot be driven. I know autonomous cars are a reality for the future, whether from Google or Tesla or someone else, and I know they will change Nicky’s life.

For some of us, consumer technology is a luxury we can live without. For others, like Nicky, technology is a game changer that continues to change their lives for the better. I look forward to Nicky giving me my first lift in his car and in joining in on his non-stop conversation with his computer driver. I also look forward to watching him head off, completely on his own, a boy and his dog and his robotic car, and then watching him return hours later with complete confidence in himself and in his technology. His guide-dog will be more companion than support, another job casualty of technology’s onward march.

“And I never again felt like a loser. . . When you listen to Bruce’s music, you aren’t a loser, you are a character in an epic poem about losers.”

People who fail don’t want to be failures, they want to be characters in an epic poem about failures. Being one of a large number of people who have failed depersonalizes the failure and eases the pain. It makes it ok to have failed. It becomes easier to say “it wasn’t my fault”, “it happens to many people”, “it is all about good luck and bad luck.” The Times article comments that “ failure has been significantly destigmatized on a cultural level in Silicon Valley and the Bay Area, even though on an individual level it can still be painful to endure.” Damn right – except that the personal level is where it really matters.

Bottom line is that failure is personal, lonely, and isolated. The reason why failure is so personal is because people fail in different ways and every person takes something different from the experience of failure.

Many of our entrepreneurs are in their late thirties or forties. In most cases, these folks have faced a setback or two in their fifteen years or more as professionals. When CEOs go through their personal histories, one of the things I probe for is an understanding of such setbacks, a willingness to discuss, acknowledge, and personalize the setback, and some real introspection into what they took away from the experience. It doesn’t have to be a failed business, it could be a poor career move or a failed marriage. I look for places where people have had to hunker down and work hard just to keep a ship afloat. I worry when people have not yet had a setback because I am concerned that they might experience this for the first time as an Osage CEO, and that can be expensive learning.

When I was CEO of Verticalnet, we went through some hard times as we transformed the business. It is a challenge to turn around a small, undercapitalized, technology company in the public company limelight and even harder when, having been an internet highflyer, most people’s reactions to the fact that I was CEO of Verticalnet was “didn’t Verticalnet disappear years ago?” After a couple years as CEO, I had friends of mine who felt they were looking out for my career path tell me that this role was doing nothing for me, that I had done the public CEO thing, and I should leverage it to find my next job. To me, leaving then would have been failure. It would have been the easy way out, and it would have broken my commitments to my investors, employees, customers, and board. Even though getting to a good outcome was harder than I expected and took longer than I had planned, it was the right thing to do. I learned more about business and about people and about myself in riding the Verticalnet rollercoaster. If it had been all easy sailing, I would have learned less. If I had walked away because it was proving too hard – I also would have learned much about myself, but I would not have liked those lessons.

We meet many entrepreneurs in our business and we always start with personal history. Many times the people we meet are repeat entrepreneurs. When discussing their past efforts, I want the details – What happened with the business? What was your role through the business cycle? Did you raise money? Did the business exit? Why did you leave? Did you return capital to investors? What would your previous investors say about you? Most importantly, what did you learn? If your personal history is filled with fast failures where you left a leadership role shortly after recognizing that you weren’t piloting a rocket ship, then you would be best to go elsewhere for capital – you are not a good fit with Osage. If instead you stuck with it, brought the damaged plane in for a crash landing, did what you could for your people, your customers, and your investors and learned a ton along the way about business, about people, and about yourself, then welcome to Osage. We would love to hear about your next gig. Let’s celebrate learning. Let someone else write an epic poem about losers.